DOL Proposes to Rescind 2024 Independent Contractor Rule and Reinstate 2021 Framework

The US Department of Labor recently published a proposed rule seeking to rescind the 2024 independent contractor rule and largely reinstate the 2021 “core factor” framework for determining worker classification under the Fair Labor Standards Act and related federal laws.

The US Department of Labor’s (DOL’s) new proposed rule (Proposed Rule) would revise the standard for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) and federal laws that use the FLSA’s statutory definition of “employ,” including the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The DOL will accept written comments for 60 days following publication in the Federal Register—through April 28, 2026. After reviewing comments, the agency may modify the proposal before issuing a final rule. The Proposed Rule will not take effect unless and until a final rule is published. The timing of any final rule remains uncertain.

The Proposed Rule would replace the 2024 regulation’s six-factor, totality-of-circumstances framework with a new framework that retains the “economic reality” test, places primary emphasis on two core factors (the employer’s control and the worker’s opportunity for profit or loss), provides other factors to help in the analysis, and considers the actual practice of the employer and worker as more relevant than what would be contractually or theoretically possible.

2024 RULE WOULD BE RESCINDED

The DOL’s 2024 rule (2024 Rule) adopted a six-factor, totality-of-the-circumstances economic realities test in which all factors were weighed equally and additional factors could be considered where relevant. The 2024 framework did not designate any factors as more probative than others.

Under the current proposal, the DOL would rescind that rule and largely readopt the 2021 framework. The DOL’s 2021 rule (2021 Rule) identified five economic reality factors but designated two—the nature and degree of control over the work and the worker’s opportunity for profit or loss—as “core factors” most probative of the nature of the relationship.  The 2021 Rule also stated that if both core factors pointed toward the same classification, that result was substantially likely to be correct. The remaining factors—skill required, permanence of the relationship, and whether the work is part of an integrated unit of production—were “highly unlikely” to outweigh the core factors.

RETURN TO THE ‘CORE FACTOR’ APPROACH

In explaining the Proposed Rule, the DOL states that prioritizing the two core factors provides greater clarity and predictability in applying the economic realities test.

Under the Proposed Rule, the ultimate inquiry remains whether, as a matter of economic reality, the worker is economically dependent on the employer (and therefore an employee) or is in business for themselves (and therefore an independent contractor).

Core Factor No. 1: Control

The first core factor examines the nature and degree of control over the work. The Proposed Rule emphasizes focusing on the actual practice of the parties rather than theoretical or unexercised contractual rights.

Importantly, the DOL clarifies that requiring compliance with legal obligations, health and safety standards, insurance requirements, or typical contractual deadlines and quality standards does not, by itself, constitute employment-type control.

Core Factor No. 2: Opportunity for Profit or Loss

The second core factor assesses whether the worker has a meaningful opportunity to affect earnings through initiative or investment. The inquiry centers on whether the worker’s managerial decisions or business initiative can influence profit or loss, rather than simply whether the worker earns more by working more hours.

Additional Factors

If the two core factors do not align or are inconclusive, additional factors may be considered, including the following:

1. The amount of skill required for the work
2. The degree of permanence of the relationship
3. Whether the work is part of an integrated unit of production

The Proposed Rule also clarifies that “economic dependence” refers to dependence on the employer for work in the manner of a typical employee—not dependence on the income derived from the relationship in isolation.

APPLICATION LIMITED TO FEDERAL STATUTES

The Proposed Rule would apply to classification determinations under the FLSA, FMLA, and MSPA. It does not affect state wage and hour laws, many of which apply different standards. For example, California, Massachusetts, and other states may apply more stringent tests, such as the ABC Test, which considers a worker to be an employee rather than an independent contractor unless the hiring entity satisfies three conditions (to summarize, that the worker was free from control, doing work outside the entity’s usual business, and independently established in that trade).

The Proposed Rule also does not alter standards applied by other federal agencies. Employers operating across jurisdictions must continue to evaluate classification under all applicable federal and state frameworks.

Until a final rule is issued, the 2024 Rule remains in effect.

PRACTICAL EFFECT AND EMPLOYER OUTLOOK

If finalized as proposed, the rule would mark a return to a structured framework in which control and opportunity for profit or loss carry primary weight in the analysis.

For employers, the proposed shift may simplify aspects of the classification inquiry at the federal level. However, the rule would not eliminate classification risk, particularly in jurisdictions that apply more expansive state-law tests (such as the ABC Test) or where courts interpret the economic realities analysis differently.

Courts retain ultimate authority to interpret and apply the FLSA, and judicial treatment of regulatory guidance may vary.

NEXT STEPS

The DOL is accepting comments through April 28, 2026. As with prior rulemakings in this area, the agency may revise the proposal before issuing a final rule.

Although any final regulatory change is not imminent, employers may wish to begin evaluating their independent contractor relationships under the reinstated core-factor framework. Considerations may include the following:

• Assessing actual practices relating to control and managerial discretion
• Reviewing whether contractors have meaningful opportunity for profit or loss
• Evaluating multi-state compliance obligations
• Planning for potential adjustments to staffing models if the rule is finalized

Planning can help mitigate disruption should the final rule be adopted substantially as proposed.

HOW WE CAN HELP

Our lawyers stand ready to advise employers on independent contractor classification, compliance strategies, and litigation risk under federal and state wage and hour laws. We are monitoring this rulemaking closely and are available to assist with submitting comments, assessing workforce models, and preparing for potential regulatory changes.